Analysis: Inflation—partly a chicken-and-egg problem …

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To what extent does the mere anticipation of further inflation already pose a problem for politicians and policymakers fighting the recent return of this noxious phenomenon?

Which came first: the chicken or the egg?

An absurdist inquiry, a riddle, a joke, even. But the frustrating and headache-inducing mental loop this perennial question creates is precisely what confronts economists and policymakers in trying to tame inflation.

How so? In that once producers, service suppliers and other large organizations begin to expect high inflation, they begin to raise prices weeks or months in advance, to get ahead of and hedge against the anticipated next spike in their own costs—including the costs of labor. Likewise, as employees and pensioners start to routinely experience their household expenses and other prices sharply rising, they too press for routine and substantial raises.

Hence, the mentality itself can cause more inflation, which leads to rising prices, which leads to an ever-hardening mindset that in turn results in further spikes in both wages and prices, and so on (the dreaded wage and price spiral.)

A brief new analysis in the New York Times reports on both parts of the inflation conundrum—producer costs and consumer prices—and exactly how the mentality of permanent high inflation represents this potentially self-sustaining hazard. It’s a phenomenon thankfully not seen in this country for many decades but one that once again threatens.  

On a positive note, the analysis states that most economic experts report that this phenomenon, at least as a dug-in mentality as it was in the 1970s, hasn’t re-emerged—yet.

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